Law: Excess Profits Tax Act, (XV of 1940)

Section: 10,10A(1)

Law: Income Tax Act, 1922

Section: 26-A

Excess Profits Tax Act (XV of 1940), Ss. 10, 10-A (1)- Object-'Transaction'-Meaning-Splitting into four subsidiary firms of partners of an existing firm-Whether constitutes 'transaction' designed to evade tax liability-Burden of proof-Department can go behind transaction to find affirmatively whether there was intention to evade tax-Inference on established facts-Question of law-Income-tax Act (XI of 1922), S. 26-A. An act or a series of acts which are calculated for the mala purpose of avoidance or reduction of liability to excess profits tax would amount to "transaction", even though they are not in the nature of a sale or purchase exchange or similar other dealing and notwithstanding the fact that such an act, dealing or arrangement etc., was not a matter within the ordinary course of the business of the assessee. The object of these sections is to deal with contrivances either in the course of business or otherwise, the main purpose of which is to avoid or reduce the incidence of taxation, In order to reach the conclusion necessary for the imposition of excess profit tax, as contemplated by section 10-A of the Act, it has to be affirmatively found by the Department that the transaction as a result of which tax has been avoided or reduced was contrived for the main purpose of avoiding or reducing the tax. It is the right of a person doing business to dissolve a partnership, to enter into a new partnership, to discontinue a business or to start a business afresh. These acts by themselves would not necessarily attract the provisions of section 10-A of the Act. It has to be established, and the burden of it is on the Department, that the main purpose of such act or acts referred to above was to evade the liability to excess profit tax. If it is established that the change or innovation is merely in form, the inference would naturally be that it had been resorted to for the purpose of evading liability to tax. In the vast majority of cases the determination of the question must largely depend upon the circumstances of the particular case, and the intention of the assessee would have to be inferred from such circumstances as would point to the conclusion which…

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